Intel's $1.45 Billion EU Fine May Hinder PC Market Recovery

Intel's market strategy helped promote use of netbooks, which are experiencing double-digit growth rates in terms of shipments, despite the economic recession.
By keeping the netbooks smaller, Intel was able to aim its low-cost, low-energy consumption Atom processor at the market segment, while helping PC makers develop a new class of thin and light full-size laptops based on Intel's upcoming consumer ultra-low-voltage Core processors for portables in the 12- to 14-inch screen range, Spooner said.

"To create these [thin and light] machines, Intel has delivered a lower-cost version of its platform for lightweight notebooks," Spooner said. "It did so instead of offering its Atom processor, which it has tied to the smaller-sized screens, for these notebooks."

Overall, the worldwide PC market declined less than IDC expected. Shipments of desktops and laptops in the quarter fell 7.1% from the first quarter last year to 63.5 million units, slightly better than the firm's projected decline of 8.2%. Gartner pegged the drop at 6.5% to 67.2 million units.

Both firms said low-priced laptops, particularly so-called netbooks, were driving growth. With prices as low as $300, netbooks have become a favorite in the global economic recession.

IDC's and Gartner's findings were roughly in line with what Intel saw in reporting its financial earnings for the first quarter. Otellini on Tuesday said PC sales so far in the second quarter of this year are "a little better than expected" and predicted that the market would stabilize in the second half of the year.

"What we've seen so far is a little better than expected," Otellini told the gathering at the company's annual investor meeting. However, the real test of how the PC industry is doing will come in June, when chip sales typically pick up as computer makers get ready for the back-to-school season.

"With that caveat, what I can say is so far so good," Otellini said of the current quarter.

Intel, which accounts for more than 77% of the PC microprocessor market, is considered a bellwether for the computer industry. Otellini said that in the second half of the year, the company expected the market to return to normalcy, "albeit at a lower base" than prerecession sales levels.

For now, analysts or Intel don't expect much change to the chipmaker's competitive strategy against AMD.

"It's hard to imagine that the dynamics of competition would change," Otellini said. However, the company won't know for sure whether there will be any impact on its business practices until it can comb through the EU's 500-page ruling. So far, Intel has seen only a summary.

Martin Reynolds, analyst for Gartner, said that as the market exists today, the competition between Intel and AMD is based primarily on which has the better technology and on the ability to manufacture a variety of products at enough volume to meet demand. There's little evidence in the market that any side deals on the part of Intel has won it large contracts.

"I don't expect to see any obvious impact from this decision, other than Intel paying $1.45 billion," Reynolds said.

Nevertheless, Intel will have to spend time and resources in defending its current and past practices, and is likely to move more cautiously in making deals with computer makers. "Intel has to behave very carefully with the EU," Reynolds said.

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